WSJ: Amazon ramps up push for companies to develop exclusive brands for its platform
Amazon is pushing for more companies to create exclusive brands for its e-commerce platform rather than developing those brands internally, according to a report in The Wall Street Journal. The reasoning, according to anonymous sources familiar with the company's strategy who spoke to the Journal, is that Amazon found creating brands on its own was too time-intensive and costly. With that work being outsourced, Amazon aims to put more resources into its own private-label brands, the sources said.
GNC, Equal sweeteners and the direct-to-consumer mattress maker Tuft & Needle are among the companies that have already launched Amazon-exclusive brands, some of which come from an incubator program the online retailer rolled out last year. Equal, which has a typically older customer base, developed a new line called Sugarly Sweet by Equal for Amazon that features modernized branding and aims to draw in younger consumers, who tend to do more of their shopping online. Brian Huff, North American president of Merisant US, which manufactures Equal, told the Journal that working with Amazon gave the company a lot of "flexability" when it came to what it could develop.
However, working with Amazon comes with some additional considerations for marketers. Huff told the Journal that the normal development period for a new product takes 12 to 24 months, while doing so for Amazon took 90 days. Equal and GNC have both found that selling through Amazon comes with higher costs as well, with GNC CEO Ken Martindale noting on a recent earnings call that there are "some kind-of-hidden expenses" in selling through the platform.
Amazon getting brands to do much of the heavy lifting when it comes to developing exclusive products underpins the massive amount of leverage the online retailing giant wields, including against some of the companies it ostensibly competes against through its own private-label lines.
For a business like GNC, working with Amazon presents a double-edged sword, as the nutrition marketer has seen foot traffic to its stores decline in recent years — a phenomenon that could be attributed to the rise in e-commerce shopping, a space that Amazon dominates. GNC, which has recently debuted two new supplements as Amazon exclusives, is hoping that a bigger online presence will resurrect interest in its physical retail locations, according to CEO Martindale.
Brands likely believe that the benefits of working with Amazon on exclusive products outweigh the negatives, especially as the e-commerce site becomes a bigger engine of advertising. According to industry reports, some marketers, namely in categories like consumer goods, are shifting larger portions of their search budgets away from Google toward Amazon, since they value the ability to link their advertising closer to the point of sale.
Amazon's ad business overall has boomed, and the company's "other" category, which largely consists of advertising, has been the fastest-growing area of its business in recent in quarters. A study by Feedvisor published earlier this month revealed that 57% of brands that sell on Amazon also advertise on the site. Almost half of brands selling on Amazon spend more than $40,000 per month to advertise there, Feedvisor found.
Trying to capitalize on that growth and court the favor of more advertisers, Amazon has continued to build out ad products, like its popular sponsored product pages, and additional tools for brand measurement. Earlier this week, the company introduced new-to-brand metrics that aim to help marketers identify strategies for customer acquisition and growth. BarkBox, a direct-to-consumer startup that sells pet supplies, has reported early success with the metrics offering.
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